The March Trade Deficit: Don’t Believe the Hype

The Commerce Department reported on Friday that the trade gap dropped slightly in March to $58.2 billion from $61.7 billion in February.  This Reuters article is loaded with hyperbole about the supposed significance of this drop when, in fact, there’s absolutely nothing statistically significant about it.  The trade deficit continues to hover in the $57-63 billion range.  Here’s an example of the “hype” I’m talking about:

The trade gap shrank 5.7 percent in March to $58.2 billion, the Commerce Department reported on Friday, much smaller than expected. The decline reflected another strong month of U.S. exports and a record $6.1 billion drop in imports to $206.7 billion, which showed the U.S. slowdown has taken a toll on consumer and business demand for foreign goods.

“Trade continues to be a huge support for the U.S. economy. Export demand is holding up well,” said Nigel Gault, chief U.S. economist at Global Insight. “Meanwhile, much of the slowdown in U.S. domestic spending is being passed on to the rest of the world through lower imports.”

Compared with first quarter 2007, U.S. exports are up 17.6 percent, while imports have increased 12 percent, he said.

“… trade gap … much smaller than expected.”  “… another strong month …”  “… a huge support for the U.S. economy …”  To hear them talk, you’d think that the U.S. is coming out the big winner in global trade!  What part of “deficit” don’t they get?  How can these kinds of trade results be characterized as a “huge support” for the U.S. economy when, in fact, the deficit is subtracted in the calculation of GDP (gross domestic product)?  This is nothing more than hype designed to obfuscate the fact that our trade results are nothing less than an economic disaster. 

So, up to this point, you’ve been led to believe that things are really improving.  Now comes the bad news, buried much deeper in the article:

U.S. exports retreated slightly in March, but were still the second highest on record at $148.5 billion. Although exports of U.S. aircraft, autos, and consumer goods all fell in March …”

So exports were actually down in March, not up!  And they remain at a high level only because of soaring prices for grain exports and because these figures aren’t adjusted for inflation.  Otherwise, as noted above, exports of manufactured goods are all down, meaning that, in spite of forecasts for a rebound in manufacturing driven by the decline in the value of the dollar, the dismantling of the manufacturing base of our economy goes on and on. 

The closely-watched U.S. trade deficit with China narrowed to $16.1 billion in March, the lowest in two years. U.S. exports to China jumped 10 percent to their second highest on record, while imports from that country fell 7 percent.

Don’t get excited.  Not mentioned here is, once again, that the rise in exports is due to soaring grain prices and that the drop in imports was due to the harsh winter weather in China, putting a damper on their ability to ship products.  (Remember those pictures of millions of Chinese huddling at train stations while their whole transportation system was at a standstill?)  Just watch, this will completely reverse in the April report when American importers replenish their depleted inventories. 

This trade deficit, now stuck at three-quarters of a trillion dollars per year, is the root cause of all of our financial ills – rising unemployment, declining wages and benefits, the credit crisis, soaring debt, the bankrupting of the Federal Reserve, the bankrupting of the Social Security and Medicare trust funds, the shortfalls in state and local revenues, etc.  The list goes on and on.  It’s driven by two factors:

  1. The idiotic pursuit of free trade with grossly overpopulated nations like Japan, Germany, Korea, China and many others that establishes a host-parasite relationship between us and these trading “partners.”  Because of the gross disparity in population density and, consequently, per capita consumption between us and such countries, they get free access to our healthy market while all we get in return is access to stunted markets, if we are given access at all.  This contributes $500 billion per year to the trade defict.
  2. Overpopulation of the United States forces us to import the natural resources we need  to sustain our bloated population – especially oil but including every category of resources, even food.  This contributes about $250 billion per year to the trade deficit.

This can’t go on much longer.  We’ve been financing this deficit, now totaling $9 trillion since 1976, through a sell-off of American assets.  We’re flooding the world with dollars that are consequently becoming ever more worthless.  We try to solve the credit crisis by propping up bad loans and making it even easier to build more debt.  There’s not a peep from our leaders about boosting incomes by bringing manufacturing jobs back home.  Their solution?  Borrow from the taxpayers and then give them the money back in the form of an “economic stimulus.” 

Every American’s share of the national debt (which doesn’t even include foreign holdings of private bonds and equities) now exceeds his net worth.  In other words, folks, we’re bankrupt!  It’s only a matter of time before the schemes to hide this debt collapse and, when that happens, the financial crisis will make today’s pale in comparison.  There’s another depression on the way.  Get ready. 

The only way to avoid it is a complete overhaul of our trade policies.  It’s time to walk away from the World Trade Organization and revisit every single trade deal.  While maintaining free trade in natural resources and in manufactured goods with nations no more densely populated than our own, we need to begin imposing stiff tariffs on countries whose markets are emaciated by over-crowding and low per capita consumption.  It’s time to take the blinders off and conduct trade with our eyes wide open.


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